Essays on reallocating disaster relief payments towards subsidizing insurance markets

Abstract

This dissertation focuses on tax-financed disaster relief payments after natural catastrophes and examines whether reallocating some of these disaster relief payments towards subsidizing insurance markets can increase overall welfare. By lowering the price of insurance, more individuals are expected to buy insurance. Higher insurance demand should lower the size of future ex post disaster relief payments by the government. Individuals could benefit from higher levels of insurance coverage as it allows them to transfer a larger share of their risk to insurance companies. Paper 1 of the dissertation provides a theoretical framework to understanding how reallocating disaster relief payments towards subsidizing insurance markets affects expenditures of the government and welfare of the individuals. Paper 2 and Paper 3 study the German frost insurance market for winegrowers as different German state governments have recently implemented premium subsidies to increase frost insurance demand of winegrowers. In Paper 2, we study the first premium subsidy aimed at increasing frost insurance demand of German winegrowers. We find the premium subsidy in Baden-Württemberg to have strongly increased insurance demand. Winegrowers in Baden-Württemberg were very price responsive. In Paper 3, we broaden the analysis of Paper 2 by also studying premium subsidies in Rhineland- Palatinate, Bavaria and Saxony-Anhalt, whereby our main analysis compares Baden-Württemberg and Rhineland-Palatinate. We find both premium subsidies to have similar effects on frost insurance demand even though the subsidy in Rhineland-Palatiante seems to be more generous. We conclude that the flexible single-peril subsidy in Baden-Württemberg was more effective in the given context.